Important Differences Between Privately Purchased Long Term Disability Insurance Policies and Employer Group Policies

J.P. Gonzalez-Sirgo
Founder of J.P. Gonzalez-Sirgo, P.A.

An individual long term disability insurance policy is simply a privately purchased policy.  You, and not an employer, made the personal effort of shopping for a long term disability insurance policy.  The policy was sold directly to you by either the disability insurance company or through an insurance agent or broker.  As part of your disability insurance application process, you might have undergone a medical evaluation, including blood tests, blood pressure, urine samples, etc.  Your monthly premium is paid directly by you and is not deducted from your employment paycheck.  The policy was not issued through your employer as part of the employer's benefits package.  In contrast, an employer issued disability insurance policy or group policy is a policy provided to employees as part of an employer group benefits plan.  You are enrolled into the plan automatically and all premiums are paid by your employer and premiums are deducted directly from your employee paycheck.   

The main difference between individually purchased vs. employer issued policies are the specific laws and procedures that govern the wrongful denial, delay or termination of valid insurance claims.  Individual disability insurance policies are governed by state law.  Disability employer group policies are governed by an anti-consumer and draconian law known as ERISA, a federal law enacted 1974. Individually purchased insurance policies have more favorable consumer laws, including a faster appeals process (if any), the ability to bring a lawsuit in state court and depending on your state, the protection of bad faith laws.  Trial by jury is allowed. Employer group disability policies are subject to a much less favorable federal law, a lengthier mandatory pre-suit appeals process, and suit must be brought in federal court with a federal judge deciding the outcome of the case.  In addition, trial by jury is not allowed and witness and physician testimony may not be allowed.  

Another very notable and important difference is how the term "disability" is defined.  With an individual disability insurance policy, one can purchase a policy that provides "own-occupation" coverage which pays disability benefits when you are still able to work after your disability, but you have to change occupations. Most employer group long term disability insurance policies define disability as your inability to obtain any gainful occupation.  This means that in order to obtain disability benefits you must not only be unable to perform your own occupation, but also any other occupation for which you are qualified by education, training or experience.  This is a much more restrictive defintion.

Residual or partial disability is also treated differently under each plan.  Under an individual policy, residual disability may be paid up to age 65.  This means that if you are partially disabled, you may still receive disability benefits.  Under an employer group plan, residual disability may not be covered at all and some plans may limit coverage to 2 years.  

Mental health disabilities are treated differently as well.  With an individual policy you can purchase a plan that treats mental health disabilities the same as any other disability.  Employer group plans usually limit coverage for mental health disabilities to 2 years and usually limit coverage for disabilities related to drug and alcohol addictions to one year.

Covered income is also treated differently.  An individual policy will cover your earned income as reported on your federal tax return, which will include bonus, commissions, tips and other profit sharing income.  Employer group plans will only cover your base salary, which will not include bonus, commissions, tips and other profit sharing income.  

Even the taxation is treated differently under federal income tax rules.  With an individual policy, any disability benefits received are typically tax free.  With an employer group plan that pays your policy premiums, any disability benefits received are taxed as ordinary income.  

Of course, other differences can exist, depending om the policy or plan at issue.

You can reach Miami Long Term Disability Insurance Claims Lawyer J.P. Gonzalez-Sirgo by dialing his direct number at (786) 272-5841, calling the main office at (305) 461-1095, or Toll Free at 1 (866) 71-CLAIM or email J.P. directly at [email protected].

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